Market conditions have remained challenging through the quarter, especially in the fixed income markets, Bernstein analyst Brad Hintz said.

All the major brokerage firms still have significant exposure to asset classes that have either taken charges since the start of the credit crisis or remain under pressure in the credit markets, he said.

“As long as these firms have these troubled assets on their balance sheets, their earnings results will be affected by the fluctuations in the fixed income market and the basis and roll risk of their hedging strategies,” Hintz said in a note to clients.

He continues to favor firms with “the most diverse business mixes” as they will be less impacted by the weakening revenue trends of the industry. “Our analysis shows that this is Morgan Stanley,” he said. Hintz has an “outperform” rating on Morgan Stanley.

Lehman shares fell 3.8 percent in pre-market trade after closing $36.11 Friday. Goldman Sachs closed at $172.64 and Morgan Stanley closed at $41.83 Friday on the New York Stock Exchange.

The following table lists Bernstein’s estimate changes on the three banks: COMPANY Q2 EPS VIEW 2008 EPS VIEW RATING